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An investor owns several shares (like 2 or 3) of Berkshire Hathaway Class A shares. He sells 5 call contracts on class B shares and then buys them back at a loss. For purposes of taxes, were the calls covered? Also, for tax purposes, does this constitute a straddle?

The reason I am asking is, I am wondering if the realized loss on the options can be taken when the calls are bought back. If you believe that it is not a qualified covered call but it is a straddle then I claim you cannot take the loss at the time you buy back the calls.

I live in the United States.

Bob

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    Again, you are asking a tax question, but didn't specify a jurisdiction. Please add a country tag.
    – Chris W. Rea
    Nov 23, 2015 at 1:02

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I'm not aware of any definition by which this scenario constitutes a covered call. A covered call requires a long position and short option in the same security. Class A and Class B shares are different securities, even if they are shares of the same company. If your call is exercised, you cannot satisfy your obligation with the Class A shares that you hold. You will have to go buy Class B shares to deliver the option holder.

I believe (not 100% sure) that this is a straddle for tax purposes since the positions would be expected vary in offsetting directions since the Class A and Class B shares should be highly correlated.

I think that you conclusion is correct - You need to book the loss on the deferred basis appropriate to a straddle.

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